[ExI] EMH/was Re: Psychology of markets explanations

[dan_ust at yahoo.com]

--- On Fri, 6/19/09, Rafal Smigrodzki <rafal.smigrodzki at gmail.com> wrote:
> On Fri, Jun 19, 2009 at 3:09 PM, <dan_ust at yahoo.com> wrote:
>> The EMH assumes that market prices are in
>> equilibrium and factor in all relevant data.
> 
> ### Does it?

Yes.  It's only in equilibrium that no one in the market would be able to beat current prices.  I.e., there are no opportunities for profit in equilibrium: everyone would be in an optimal state and any deviation from this would induce a loss.

> I thought that this is so only the the strong-
> or to a
> lesser extent semi-strong form of the hypothesis. The weak
> form only
> says that prices follow a random walk and analysis of past
> prices
> cannot be used to reliably achieve above-market returns.

But this weakened form is so weak that it doesn't really predict much -- save that _pure_ technical analysis will likely fail in the long run.  But pure technical analysis is not the only tool or even the most used tool at the disposal of entrepreneurs in general or just people in asset markets.

> I tend to
> believe EMH in its weak form, aside from minor
> inconsistencies ( such
> as high performance of low P/E stocks).

How would you explain the current crisis in light of the EMH?

Regards,

Dan